Conveyancing Consumer Alert – Beware of the Sneaky Stamp!

Posted on July 13, 2011 by | 2 Comments

Peter Mericka B.A., LL.B OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

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Conveyancing Consumer Alert - Beware of the Sneaky Stamp in Estate Agent Contracts!

Real estate agents have no automatic right to lodge a caveat over a client’s property to secure the payment of commission. So some cunning real estate agents are adding a clause to the agency contract by which the client gives the real estate agent permission to lodge a caveat. If a real estate agent adds a caveat clause, the client may be able to argue that the conduct of the real estate agent is misleading and deceptive. Even more so if the clause is inserted into the contract in a manner that makes it downright sneaky!

Bell Real Estate Belgrave is a real estate agency in the Dandenong Ranges, east of Melbourne. My firm was completing the conveyancing for a vendor client who had been a long-standing client of Bell Real Estate, and who had sold his property through that agency. He had always paid his accounts on time and without dispute, and there was never any suggestion that he would not pay Bell Real Estate their commission on this occasion. Thus, my client had a history of paying Bell its proper commissions. So, it came as quite a shock when the real estate agent telephoned our office on the Friday and told us that settlement would not be allowed to proceed on the following Monday because Bell Real Estate were concerned about the payment of their commission.

Commission Rage

Commission rage is a common phenomenon in the real estate industry, and it is often the cause of desperate behaviour on the part of real estate agents who fear the loss of commission. It is particularly prevalent in lean times, and the real estate industry is experiencing lean times at present.

Glen Chandler of Bell Real Estate Belgrave - Branch ManagerCommission rage may well have been a factor in this case, because when Glen Chandler of Bell Real Estate Belgrave telephoned my office to complain that he did not have enough deposit money in the Bell Real Estate trust account to cover the commission, I could sense that he was both anxious and angry. Chandler called our office and asked if the vendor had instructed our firm to draw a cheque for commission payable to Bell Real Estate Belgrave, and when he was told that we had not been instructed to make any of our client’s funds payable to his office, he was put through to me. Chandler demanded that we arrange for a cheque to be made payable to Bell Real Estate Belgrave, as he had not been able to get in touch with the vendor and he did not want settlement to proceed before he had been paid.

The staff member handling the file informed me that she had spoken with the purchaser’s conveyancer, but it was too late to have the settlement cheques changed. (Ordinarily the cheques delivered at settlement are payable to the vendor’s mortgagee and the vendor, not to the real estate agent. It is usual for the real estate agent to deduct commission from the deposit held by the real estate agent, and to invoice the vendor for any amount outstanding. But these are tough times for real estate agents, and this may be encouraging some to grant themselves another privilege.)

It was Friday afternoon, the cheques had been ordered for settlement on the Monday, and the purchaser’s lender had confirmed that it was not possible to change them. There was nothing further that could be done to have the cheques changed at such short notice, and so close to settlement.

I explained to Chandler that the commission would have to be paid after settlement had taken place, as the vendor would be relying on the settlement proceeds to pay it. Chandler was furious. He screamed into the phone, demanding that the commission be paid before settlement, otherwise settlement would not proceed at all. I asked Chandler if the vendor had given any indication at all that he couldn’t or wouldn’t pay the commission, and he admitted that the only reason he was so concerned was that the vendor may change his mind after settlement and decide not to pay. When I suggested to Chandler that perhaps he was being a little unreasonable, he screamed again, adding that Bell Real Estate would lodge a caveat over the vendor’s property so that settlement couldn’t take place at all.

Knowing that a debt of commission does not give rise to a caveatable interest in a client’s property, I explained to Chandler that he was being rather extreme and that he really wasn’t entitled to lodge a caveat over his client’s property. In any case, lodging a caveat would be self-defeating, ensuring that the commission would not be paid, because the proceeds of the sale were needed for this purpose. In other words, by stopping the settlement, Chandler would also be stopping the payment of his own commission – a rather silly strategy.

Chandler would have none of it. He was in a heightened state of anger and he screamed into the phone again, “No cheque, no settlement, we’ll slap a caveat on that place right now, we’ve got a clause in the sale authority that says we can!”

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  • An agent’s commission is a success fee.  Success only occurs if the contract is completed (ie financial settlement is effected) or potentially where the contract is terminated for breach.  Hence, the agent was not entitled to lodge a caveat because no commission was payable at that time.  The agency agreement may seek to specify an earlier event upon which the commission beomes payable but the courts have always resisted such attempts for obvious reasons and I am unaware of any successful attempts.

    However, expenses associated with the sale are often payable notwithstanding that a sale has not been effected: in such case, the expenses (as authorised and actually incurred) may be the subject of a caveat from the time that they become payable unless, as in SA, this is prohibited by statute (see Land & Business (Sale & Conveyancing) Act section 24 in relation to “residential land” only).

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